The week in GRC: SEC’s Clayton urges Covid-19 disclosures, and Starboard nominates six to Commvault board
– The Wall Street Journal reported that SeaWorld Entertainment CEO Sergio Rivera resigned from the company having been in the job for about five months. The theme-park company said CFO and treasurer Marc Swanson is serving as interim CEO, while chief accounting officer Elizabeth Castro Gulacsy is stepping in as interim CFO and treasurer. Rivera resigned over disagreements about the board’s involvement in decision-making, the company said in a securities filing.
– According to Reuters, investors with nearly $200 billion in assets under management that hold shares in Japan’s Mizuho Financial Group say they intend to back a shareholder proposal urging the bank to cut its lending for coal and other fossil fuels. Ahead of Mizuho’s AGM in June, Norway’s largest pension fund and life insurance company, Kommunal Landspensjonskasse, Storebrand and Denmark’s MP Pension said they would support Japan’s first climate-change resolution.
Although they represent only a fraction of shareholding rights, their support for the proposal brought by Kiko Network – an activist group and shareholder in the bank – adds to the pressure on the bank, which has already tightened its lending policies. The proposal calls on the bank to outline a plan and set targets so that its business practices are more in line with the Paris climate accord.
‘We are considering ways to strengthen our environmental and climate-change efforts,’ a Mizuho spokesperson said, adding that this was ‘including but not limited to coal-fired power.’
– CNBC reported that WeWork’s special committee is suing SoftBank after SoftBank withdrew its $3 billion tender offer. WeWork claims SoftBank breached its fiduciary duty to WeWork’s minority shareholders by failing to follow through with the offer. SoftBank had said its decision to withdraw came from its own fiduciary duty to shareholders. The company is seeking to require SoftBank to complete its offer or pay compensatory damages, according to its announcement.
‘SoftBank has already received most of the benefits provided to it under the [master transaction agreement], including broad control of WeWork and additional economic benefits,’ the special committee of WeWork’s board said in a statement. ‘SoftBank’s wrongful conduct in failing to consummate the tender offer deprives WeWork’s minority stockholders of the liquidity they were promised.’
SoftBank declined to comment on the lawsuit.
– MarketWatch reported that SEC chair Jay Clayton said public companies should disclose to shareholders whether they are planning to use coronavirus-related bailout funds. Clayton said investors are still eager for information about the companies in which they invest and companies should be telling them whether they need capital and how the virus is impacting their business. The need for bailout money is sensitive information, he said.
The SEC has granted companies relief so that they have an extra 45 days to file updates on how the virus is impacting their operations.
– Pete Driscoll, director of the SEC’s office of compliance inspections and examinations (OCIE), published details about the expected scope and content for compliance with Regulation Best Interest, a new rule requiring broker-dealers and investment advisers to disclose potential conflicts of interest, Reuters reported. The notice seeks to underscore that the SEC will assess whether brokers have made a ‘good faith effort’ to comply with the rule, including the operational effectiveness of its procedures, the agency said.
The financial services industry had lobbied to delay or suspend parts of the measure beyond its June 30 deadline, pointing to issues arising from the coronavirus pandemic, but SEC chair Jay Clayton said the deadline remained ‘appropriate’. He indicated, however, that there could be flexibility and more insight provided on the agency’s examination approach.
Driscoll said the agency’s focus would ‘take into account firm-specific effects from disruptions caused by Covid-19.’
– According to Reuters, US companies laying off workers in response to the pandemic but still paying dividends and buying back shares are drawing criticism from labor unions, pension fund advisers, lawmakers and corporate governance experts. Although most US companies are scaling back payouts after a decade in which the amount of money paid to investors through buybacks and dividends more than tripled, some are continuing their policies despite the economic pain.
‘This is the time for large companies to try to help, for systemic reasons, to keep things flowing,’ said Ken Bertsch, executive director of the Council of Institutional Investors. Goldman Sachs analysts forecast this week that S&P 500 companies will cut dividends in 2020 by an average of 50 percent due to fallout from the outbreak. Only those companies receiving financial support from the US government under the stimulus package are obliged to suspend share buybacks.
– The Guardian reported that airlines are lobbying to rewrite the terms of a global agreement designed to tackle aviation emissions, with the coronavirus pandemic expected to make its targets more difficult to meet. Campaigners accused airlines of trying to ‘dodge their obligations’ but the industry said it was ‘a matter of survival’ with most international travel stopped in the Covid-19 crisis.
The International Air Transport Association has called on the International Civil Aviation Organization to amend the carbon offsetting and reduction scheme for international aviation, or risk airlines pulling out. Under the system, airlines have to pay to offset any growth in carbon emissions above a baseline set by the average emissions of 2019 and 2020.
– According to Reuters, Bloomin’ Brands and Jana Partners said they have agreed to add two new independent directors to the Outback Steakhouse owner’s board, months after the activist investor pushed for changes following struggling restaurant sales. Scott Ostfeld, a partner and portfolio manager at Jana, and John Gainor, a corporate director with experience in the casual dining market, have been nominated, the companies said in a statement.
– The WSJ said FASB is expected to delay implementation of accounting rules on revenue recognition and leases for certain companies, which would be its first major act of relief during the Covid-19 pandemic. The board’s members proposed allowing private franchisers to delay by one year the effective date of a standard that unifies how companies account for revenue from sales and services. The board also proposed allowing private companies and non-profits to defer by one year the effective date of a standard requiring companies to place operating leases on their balance sheets.
– Reuters reported that Starboard Value nominated six directors to the board at Commvault, setting up a second contest in two years between the US data protection and data management software company and an activist hedge fund. Starboard often seeks operational changes at the companies it targets. Its slate brings board, marketing and CEO experience.
Commvault said it tried to engage with Starboard about what skills the board might be missing since learning on March 30 that the hedge fund had taken a stake. Commvault said that, in light of the coronavirus pandemic, its biggest priorities are the health and safety of its employees, taking care of its customers and operating its business. ‘Notwithstanding these important priorities, Starboard has submitted director nominations and the Commvault board will, consistent with its fiduciary duties, consider them,’ the company said.